Make Texas More Competitive: End the Margin Tax

In Texas, we take pride in being the best. We like to think that Texas is a business friendly state that welcome new companies to Texas. However, the Tax Foundation newly released ranking of economic competitiveness lists Texas as the 15th most competitive state in the country (down from 13th place last year). The Tax Foundation’s main critique about Texas is the state’s margin tax, which it ranks as the 49th worst state “corporate income tax” in the nation.

Lone Star Policy Institute is pleased to join with the Conservative Texas Budget Coalition to call for the elimination of the Texas margin’s tax. Receipts from this tax only account for about $7.5 billion of the state’s total budget. Under the Conservative Texas Budget, the total budget for the 2018-2019 biennium would be about $234.1 billion.

When businesses consider expansion into new markets, they consider the cost of doing business including tax costs. Texas is one of only four states with a gross receipts tax. The Tax Foundation finds that gross receipts taxes, like the Texas margin tax, are more harmful to business and more complicated than traditional corporate income tax. Importantly, The Tax Foundation has previously indicated that eliminating the tax would move Texas up to the third most business competitive state in the nation.

Eliminating the tax would make Texas domestic companies more competitive, allowing them to reinvest capital into their own companies, and would alleviate domestic companies from the administrative burden of the tax.

Time after time, cities and states offer sweetheart deals of tax abatement to attract companies like Amazon to move facilities to a new location. Instead of favoring particular companies with tax abatements or other economic incentives, we believe the best over-all economic development plan is to eliminate the margin tax across the board so that Texas can welcome businesses small and large to the Lone Star state.

Ending the margin tax would spark further economic growth in Texas by reducing burdens on domestic companies and attracting inbound investment. Thus, the “lost” tax receipts form the margin tax would be partially offset by increased to sales tax receipts, and by spending restraints set forth in the Conservative Texas Budget.